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Banks currently charge overdrafts on all types of transactions placed against a checking account when it goes to a negative balance. This includes debit card transactions, credit transactions, ATM Cash Withdrawals, checks, and automated payments, and automated debits.

In past years, there were good reasons for having overdraft fees because there was no way for a bank to honor a check if it was written over the balance of the account holders checking account. However, with the automation of transaction processing and debit cards, most of this problem has gone away or could easily be avoided.
In today's day of authorizations and the ability to instantly check a customer's balance at the time of the transaction, it is immoral and inappropriate and I believe, illegal for banks to charge overdraft fees on transactions that the the bank is authorizing at the time of the transaction.

Banks have the ability to stop debit card, credit card and ATM Cash withdrawals at the point of sale or ATM for any transactions that would make the account overdrawn. I have experienced a number of overdraft fees against transactions that were approved by the bank. If a transaction goes through that is directly authorized by the bank it should be honored and not subject to overdraft fees. Willingly allowing a transaction to go through that will result in an overdraft fee is tantamount to predatory lending.

I believe it is only fair for the banks to be able to charge overdraft fees for payments initiated outside of the bank. Specifically, banks should only be able to charge overdraft fees for checks and automated debits initiated outside of the bank's system.

The other aspect of credit and debit card transactions is that it is hard to tell when they will actually go through and debit the checking account. Transactions may take two to five days to be applied to the checking account. When they were made, the account holder made them in good faith. A few days later, if a problem with a deposit occurs or a check gets deposited against the account, the account holder should only be charged the overdraft fee for the check, not for transactions that were placed five to two days earlier, that the account holder has no control of when they actually hit their account.

Further, banks should immediately debit checking accounts and hold in escrow funds for checks or payments generated and sent through their on-line bill pay systems.